Income from the forest
Classified in Economy
Written at on 
English with a size of 2.99 KB.
TOT = (weighted average of export prices / weighted
Average of import prices) * 100… Above > 100 Improving… Below < 100
Worsening… Interpretation: If a
country’s terms of trade improve, it means that for every unit of exports sold
It, can buy more units of imported goods. Short
Run changes in TOT: Demand/Supply of Exports and Imports… Relative
Inflation rates… Exchange rate fluctuations… Long run changes in TOT: Productivity… World income… Technology. 2. Classical (Ricardian) model: Two
Countries, two commodities… Labor is the responsible factor for comparative
Advantage… Difference in labor
Efficiency is taken into account… It
Tries to explain the gains from trade…
Heckscher- Ohlin model: Two countries, two commodities… Factor abundance is the responsible factor… Difference in factor supply is taken into account… It tries to explain the basis of
Trade. 2. PREDICTIONS AND ASSUMPTIOS:
Classical (Ricardian) model: Tech as basis of trade… Absolute
Advantage/comparative… Labor is the only relevant factor… Factor of production
Cannot move between countries… A country has Comparative advantage in good if
The opportunity cost is lower than is found in elsewhere. Heckscher- Ohlin model: two factors if production labor and
Capital… 2 goods… factor of production can move costlessly from one sector to
Another… The country that is capital abundant compared with other country, will
Have comparative advantage in the production of capital intensive goods. 3. Free trade vs Autarky: even with
Trade barrier the prices is lower… The consumers have a major variety of goods…
Yes, it is better because you can
Diversify the market in that way, you have more possibilities…. With free
Trade, consumers gain the added consumer surplus $(a+b+c), while producers lose
$a. Subtracting the value of the loss from the gains leaves a net gain in the
Amount $(b+c). Therefore,
Free trade is better than no trade (autarky).